[New York Stock Market] Mixed Close Amid Corporate Earnings Digest... Only Dow Declines

The three major indices of the U.S. New York stock market closed mixed on the 23rd (local time) as they digested corporate earnings and other factors, ending near the previous day's levels. The Dow Jones Industrial Average, which had surpassed the 38,000 mark for the first time ever the day before, edged down slightly, showing a pause in the rally. The S&P 500 continued its record-high streak, but price movements were limited.

[Image source=Reuters Yonhap News]

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 37,905.45, down 96.36 points (0.25%) from the previous session. This marked a retreat below the 38,000 level just one day after surpassing it. Meanwhile, the large-cap-focused S&P 500 rose 14.17 points (0.29%) to 4,864.60, and the tech-heavy Nasdaq Composite Index closed up 65.66 points (0.43%) at 15,425.94.

Investors, ahead of key economic data releases later this week such as the Personal Consumption Expenditures (PCE) Price Index and Gross Domestic Product (GDP), monitored corporate earnings and earnings guidance released that day amid a consolidation phase. Alex McGrath, Chief Investment Officer (CIO) at NorthEnd Private Wealth, noted, "Besides growth rates and inflation, corporate profits could be the most important factor this quarter."

The mixed fortunes based on earnings were also reflected in individual stock movements that day. 3M, which issued disappointing earnings guidance, fell 11%, dragging down the Dow. Johnson & Johnson also dropped more than 1% following its earnings release. DR Horton slid over 9% due to earnings below expectations. Conversely, United Airlines rose more than 5% despite forecasting a first-quarter loss due to the grounding of Boeing 737 Max 9 aircraft, as its fourth-quarter results exceeded expectations. Verizon and Procter & Gamble also rose by over 6% and 4%, respectively, on earnings that beat Wall Street forecasts.

After the market closed that day, Netflix released its earnings. It reported 13.1 million new subscribers in the fourth quarter of last year. Fourth-quarter revenue was $8.83 billion, surpassing the market consensus of $8.72 billion compiled by LSEG. However, fourth-quarter earnings per share were $2.11, below the market expectation of $2.22. This week, earnings announcements are also scheduled from big tech companies including IBM, Tesla, and Intel.

Eric Friedman, Chief Investment Officer at US Bank Asset Management, said, "The recent rally is driven by easing inflation and stable corporate earnings guidance," adding, "The market has shown strength on expectations that the Federal Reserve (Fed) will turn dovish." However, the fact that the recent rally has been concentrated in tech stocks, including Nvidia, is also a concern for investors. Nvidia, considered a leading AI stock, continued its rally and is approaching $600 per share.

Later this week, key indicators such as the December Personal Consumption Expenditures (PCE) Price Index and the preliminary fourth-quarter GDP growth rate will be released. As Fed officials have entered a blackout period ahead of the January Federal Open Market Committee (FOMC) meeting next week, investors are expected to seek hints about future monetary policy from these data. The core PCE for December, to be announced on the 26th, is expected to rise 0.2% month-over-month, slightly above the previous month's increase. However, it is forecasted to show a 3% year-over-year increase, indicating a slowdown. The preliminary estimate for U.S. fourth-quarter GDP growth, released a day earlier, is expected to show a slowdown to around 1.9%.

Currently, market expectations for an early rate cut have somewhat diminished compared to the beginning of the year. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the futures market currently prices in about a 40% chance that the Fed will keep rates steady in January and then cut rates by at least 0.25 percentage points at the March FOMC meeting. This contrasts sharply with nearly 80% probability just ten days ago. The anticipated timing for the first rate cut has thus been pushed back from as early as March to May.

This shift is largely due to stronger-than-expected economic data, which has led to speculation that the Fed will be cautious about cutting rates. Hawkish comments from Fed officials, such as "rate cuts are premature" and "possible only in the third quarter," have also dampened market optimism.

Philip Marey, Chief Strategist at Rabobank, said, "The December FOMC minutes show that there has not yet been detailed discussion about a rate cut cycle," adding, "Unless the Fed becomes concerned about a recession, the first rate cut is likely to occur around June." He explained that as long as the U.S. economy avoids recession, there is little justification for an early rate cut. Oscar Munoz, Chief Strategist at TD Securities, said, "The Fed will want to be confident that inflation progress toward the 2% target is sustained."

According to a survey of economists released by major foreign media on that day, 70% of respondents expected the Fed to cut rates in the second quarter. Notably, more respondents anticipated a cut in June than in May. The pace of rate cuts expected for this year also fell short of market expectations. About 72% of respondents?roughly six out of ten?said the total rate cut for the year would be less than 1 percentage point. This is below the current market forecast of a cut exceeding 1.25 percentage points. Just a week ago, the futures market was pricing in a more hawkish cut of over 1.5 percentage points.

In the New York bond market, the benchmark 10-year U.S. Treasury yield rose slightly to around 4.13%. The 2-year yield, which is sensitive to monetary policy, traded near 4.37%. The dollar index, which measures the value of the U.S. dollar against six major currencies, fell more than 0.2% to 103.5.

Oil prices slightly declined as Libyan oil production resumed despite reports of disruptions in U.S. crude output. On the New York Mercantile Exchange, March delivery West Texas Intermediate (WTI) crude closed down 39 cents (0.52%) at $74.37 per barrel.